Economists presume that wage increases and supervisor ratings of job performance are equally good measures of individual productivity. But psychologists argue that companies often use inaccurate trait scales to assess employee performance, therefore salary increases are not a good measure of individual productivity (apparently, some studies have shown a zero correlation between salary increase and job performance). Does anyone know of studies in this area? What is the true correlation between salary increase and a rating of job performance made by a supervisor?
There is evidence that the pay raise and supervisory ratings connection may be more meaningful, and thus more of an incentive, if candidates for a potential pay raise can keep track of cases akin to themselves. And that a track record of precedences has been established. This seems like an equity-performance redux , where peer referencing determines the effectiveness of incentivizations. What behavioral economists call the anchoring effect.
The more diverse the organization, the more likely the weakening of the perceived pay-ratings correlation, due to weak anchoring:
https://www.researchgate.net/publication/276091125_People_like_me_are_never_promoted%21_Plurality_in_hierarchical_tournaments_for_promotion_and_compensation
I also suspect that due to the existence of similar, homogenous cases as precedence, the rating task of the supervisor becomes easier and more accurate.In the sense that the quantum of the pay raise will capture the "true" supervisors' ratings. The assumption here is accessibity to such information and that supervisors act rationally.
The anchoring effect in ratings-pay is a double-edged sword, it results in efficiency and simultaneously promotes more of the status quo. If the existing status quo is one of bias, despite a degree of staff homogeneity, the vicious cycle will be reinforced. The converse results in a virtuous cycle that approaches a pure meritocracy.
Article People like me are never promoted! Plurality in hierarchical...
Great. Thanks so much for taking the time to comment. I have also come across the following paper, "The economics and psychology of personality traits":
http://www.econstor.eu/bitstream/10419/34948/1/559866917.pdf
Economics and psychology are joining forces!
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